Sage 100

Michael – I do this at least twice a year for the employees, and it is a bit of work, but I'll explain how I do it.   What I'm not sure about it the threshold for having to report the Gift Cards to Employees – we do cash bonuses at our Fiscal Year End as well as our Christmas Party, and they're enough that I know I have to report those.  Seems like $50 would be below the threshold, but I'm not a tax expert and don't know about that!

I set up an earnings code of CB (Cash Bonus) that is a Misc Earnings Code, with a Fixed Amount ($54.15 in your case – explained below)) and expense it by department (if you are using Departments in Payroll).  I also set up a Deduction code of CB for a Fixed Amount  ($50 in your case) and use a Deduction Accrual Account that points to a Clearing Account (also explained below!).  You might want to set your earnings code and deduction code up as GC for Gift Card.  Just a thought.

You can back into the amount you want the employee to be paid by dividing the number you want by .9235 – which takes care of the mandatory FICA and Medicare.  (I don't worry about the employee's withholding taxes – just the FICA & Medicare and "any other mandatory Employer Paid Taxes").    In the case of $50, assuming you don't have any mandatory State Taxes that need to be deducted (Oregon has one of those!) you would actually pay the employee $54.15, which is $50 / .9235, and takes care of the employee's $3.36 FICA and $0.79 Medicare deductions.  If you happen to offer profit Sharing, the system automatically calculates that if it is set up as an Employer Contribution.  I don't take the 401k deduction out of the cash bonuses I do – that just would never work out!

When I go to the bank to get the cash (or in your case, whoever you write the check to in order to purchase the Gift Cards), I code that check to a clearing account.   

You would then input all of the checks through Payroll as Manual Checks, using the same check number and check date as the check you wrote for the Gift Cards, but the check amount would be zero for each employee.  The new Earnings code (CB in my case) would be $54.15, and then you use the new CB deduction code  $50 out that you gave the employee in a gift card, and enter $3.36 on the tax screen for FICA and 0.79 for Medicare.  Hence the zero check amount –  the income is recorded for the employee this way, as well as the expense for the employer.  And you will have to make a tax deposit for the FICA and Medicare as well – and obviously you'll be paying for both the employer and the employee.    Everything gets expensed through Payroll, and the check you wrote for the gift cards is cleared out by the deduction you took back through Payroll.  And the gift cards are expensed through payroll departments, or whatever Expense account you designated when you created the Earnings code for the Gift Cards.

There are a lot of steps involved, but this is the only that I've found that works each and every time.

Did you change the check header on each employee to be a manual check?  It shouldn't print them if indeed you told it to be a manual check...

Oh!   And I forgot to mention that you have to be careful on the employees who have maxed out on FICA and/or are over the Medicare threshold of $200,000.  You'll have to use different calculations to gross up the wages in those two cases.